To calculate a company’s size under a receipts-based NAICS code, the SBA will add the company’s total income to its costs of goods sold, as those amounts are reported on its tax returns. In fact, the SBA’s regulations are clear that it must use these reported amounts to determine a company’s size status.
What happens, then, when a company’s taxes show “income” that might not really reflect money in the company’s accounts? The SBA’s Office of Hearings and Appeals recently considered this question, and affirmed a company’s ineligibility based on the income reported in its tax returns.
On December 17, 2018, the Small Business Runway Extension Act became law. As we’ve previously written, this Act had a single purpose: to extend the measurement period of the SBA’s calculation of average annual receipts, from three years to five.
We opined that the Act became effective with the stroke of the President’s pen. Just a few days ago, however, the SBA disagreed—according to the SBA, the 5-year calculation period will not become effective until its regulations are revised.
The Small Business Runway Extension Act, signed into law earlier this week, changes the small business size calculation under revenue-based NAICS codes from a three-year to five-year average.
The new law has sparked a great deal of discussion in the government contracting community, with some commentators pointing out that not all small businesses will benefit. But how does the SBA–the agency tasked with implementing the new law–feel?
Well, according to commentary published earlier this year, the SBA thinks the five-year period is a bad idea.
The SBA has rejected several recommendations for major changes in how the SBA calculates small business size status.
In commentary published in the Federal Register last week, the SBA rejected (among other things) recommendations that it use average employee count to evaluate the sizes of construction firms and that other firms’ sizes be measured by profits or net worth instead of average annual receipts.
Under the SBA’s size regulations, when a size standard calls for a company’s size to be determined by its average annual receipts, the company’s ongoing fiscal year usually isn’t included.
In a recent size appeal decision, the SBA Office of Hearings and Appeals rejected an argument that the SBA’s evaluation of a company’s size should have included receipts from the company’s current fiscal year.